Deputy First Minister John Swinney confirmed the move last night, after earlier talks with Cosla, the representative body for councils, appeared to have ended without resolution.
Mr Swinney said: “I can confirm that following constructive discussions with Cosla leaders, and notwithstanding the financial impact on our fully committed budget, the Scottish Government is contributing a further £140 million of recurring funding to support Cosla to make a revised pay offer to the local government workforce.
“Without the ability to borrow or change tax policy, this will have a significant and ongoing impact upon our fixed budget that ministers are taking steps to address. Finding a solution must be a collaborative endeavour and local authorities now need to do the same.
“This additional funding demonstrates our commitment to local government and their staff and will allow local authorities to make a significantly enhanced pay offer.”
Cosla met on Friday but council leaders failed to agree a new pay offer, instead stating they required “further clarification” from SNP ministers.
Another meeting within the next week will take place ahead of two weeks of planned strikes in Edinburgh during the festival.
The three unions representing local government workers – Unite, Unison and the GMB – have rejected the two per cent pay rise offered.
Keir Greenaway, senior organiser at GMB Scotland, said the “ongoing inaction” would only increase “anger and fear” among workers.
He said: “In the six months since the two per cent was rejected, staff have suffered badly in a cost-of-living crisis that’s now spiralling out of control.
"More of our members are affected by debt, fuel poverty, and hunger, and this will only get worse with further rises to inflation and energy bills.”
He added: “This is also exposing a huge gulf between our political leaders and frontline workers. It is shameful that swathes of our public services are delivered by people in working poverty and it’s disturbing that our political leaders won’t confront it.
“This crisis will turn into a catastrophe for tens of thousands of key workers, and more councils will face more strikes, unless a significantly improved pay offer is tabled.”
Before the news of the additional funding emerged, Wendy Dunsmore, industrial officer at the Unite union, had accused Cosla and the Scottish Government of “procrastination” and said any strike action would be the fault of councils and the government.
She said: “What more clarifications and information do they need other than thousands of local government workers have voted with their feet to walk-out because the current 2 per cent ‘offer’ is totally unacceptable?
"The public should be aware that the trade unions have been trying since the turn of the year to amicably resolve the pay award for 2022 through negotiations, and the 2 per cent pay offer was rejected in March.
"Our members have been strung along and they have had enough of the politicking. If strike action does occur in a matter of days then it will be entirely the fault of COSLA and the Scottish Government.”
A Cosla Spokesperson said: “We held constructive discussions with Scottish Government earlier this week. Leaders met virtually today and at this meeting agreed that they needed further information.
“Given the importance of a pay award for our workforce, Council Leaders wanted to seek further clarification from both the Scottish Government and the UK Government and will reconvene in the next seven days to further consider this matter.”